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The Brief: Mar 13, 2017
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#Featured: ImpactAlpha Original

Network Effects: Impact Seed Funds in Africa and Latin America Share Secrets and Struggles

Early-stage investing in emerging markets is hard. A commitment to serve low-income customers makes it even more challenging. Scaling that up around the world? Next to impossible.

Capria Network thinks it has cracked the code. With its latest $2 million in investments in early-stage impact funds in west Africa, South Africa, Colombia and Brazil, the Seattle investment firm now has stakes in nine emerging market fund managers investing in businesses providing low and lower-middle income customers in emerging markets with life- and environment-enhancing products and services. That makes Capria one of the largest VC fund networks in the world, and the largest with a social-impact mission.

Keep reading David Bank’s post on ImpactAlpha.

#Dealflow: Follow the Money

Congo Basin Blue Fund begins to come into focus. The Congo Basin forests are second only to the Amazon Basin as a natural carbon storage system. But for countries in the basin to make the transition from forest exploitation to ecosystem services will require both cooperation and capital. The Brazzaville Foundation is pushing forward with the nine-country Congo Basin Blue Fund introduced at the global climate conference last year. Meeting in Oyo last week, ministers from Morocco, Angola, Burundi, Central African Republic, Chad, Democratic Republic of Congo, Gabon, the Republic of the Congo and Rwanda signed an MOU to officially form the new fund. The fund will finance projects in river transport, dredging and infrastructure, renewable energy, irrigation, fishing and ecotourism to foster sustainable industries based on the Congo’s renewable resources. Next step: raising capital from climate-change financing facilities, international agencies, private investors and philanthropies.

Edtech-for-colleges startups attract VC financing. CampusLogic raised $10 million in Series B financing, led by 4.0 Partners, for its mobile platform for families managing financial aid applications. Today’s complex financial aid system means four in 10 low-income high school students who are accepted to college fail to enroll in the fall. CampusLogic’s technology helps families understand and manage college costs. Examity, which offers flexible test proctoring services that accommodate the schedules of working adults and other nontraditional learners, raised $21 million from University Ventures and Inherent Group.

Accel Partners’ new India fund leads AgroStart’s $10 million raise. The Silicon Valley venture firm, which last year raised $450 million for its fifth India fund, teamed up with impact investor Aavishkaar and IDG Ventures to back the New Delhi agtech startup. AgroStart helps Indian farmers bypass middlemen to buy seeds, nutrients and hardware and provides analytical tools to boost farmer productivity. Bonus data point: More than 35 percent of AgroStart’s more than one million customers use WhatsApp, up from 10 percent a year ago.

D.C. accelerator to boost minority- and women-own businesses. Nationally, minority- and women-owned businesses lag white- and male-owned businesses in value. In D.C. the gap is even wider. The Washington Area Community Investment Fund, a community development financial institution, is launching the Ascend Capital Accelerator to help women entrepreneurs and entrepreneurs of color build their human and financial assets. The first 25 entrepreneurs will join the eight-week program in April.

See all of ImpactAlpha’s recent #dealflow.

#Signals: Ahead of the Curve

Heron Foundation beats deadline to deploy 100 percent for mission. Traditionally, foundations have kept their investment sides separate from their giving sides. In 2012 the F.B. Heron Foundation set a goal to invest 100 percent of the foundation’s $250 million in assets to fight poverty by the end of 2017. CEO Clara Miller says Heron hit its target last year and “became one staff, working in a single operation dedicated to deploying all our resources—investment assets, social and reputational capital, cash ‘spend’—for mission.” Writing in Stanford Social Innovation Review, Miller says Heron’s next goal is “a revolution in capital.” That means ‘connective investing’ to drive system change on both Main Street and Wall Street.

Global Partnerships blends finance to deliver for the poor and for investors. Global Partnerships has lent $232 million to more than 100 microfinance institutions and other social enterprises in 14 countries since 2005, and hasn’t missed a quarterly payment to investors. Its clients have delivered finance, solar energy and agricultural inputs to millions of customers, whom are mostly women, rural and poor. How does Global Partnerships do it? A new case study details the nonprofit fund manager’s use of donations, junior debt tranches, and limited recourse notes (which give holders rights to only specific cash flows) to reduce risk and produce stable returns for investors, who receive fixed-income returns of 3 to 4 percent. The case study from Convergence, a platform for such blended-capital deals, says the approach lets Global Partnerships maintain its commitment to marginalized households. Caveat: The small size of GP’s six funds (the biggest is $75 million) and comparatively low returns limits interest from institutional and purely commercial investors.

#2030: Long-Termism

The global middle class is emerging even faster than we thought. The “next billion” may be more like the next two billion, or more. The faster-than-expected growth of the middle class, particularly in Asia, means the world could add 2.2 billion middle-class consumers by 2030, nearly one billion more than previous forecasts. A new analysis from Homi Kharas at the Brookings Institution suggests the world could be majority “middle class” (and above) within a few years. The middle class is already spending $35 trillion annually; spending could nearly double by 2030. That’s one-third of projected global GDP growth.

To be sure, much of that global middle class will still be quite poor by the standards of today’s affluent countries (The Brief, Feb. 16). Still, a bigger global middle class means more consumption and, among other things, more greenhouse gas emissions. Mitigating those impacts: increased urbanization (city dwellers produce less carbon per capita than rural residents), better education, particularly for girls (thus lowering fertility rates), and the shift toward more sustainable energy and resource-use.

Rising expectations will require “a new package of inclusive growth” says Kharas. Provisioning middle-class public goods such as health care, universal education, financial security and affordable housing will test both developed and developing countries. Without political leadership, he warns, the win-win of global growth could be distorted into a narrative “of colliding interests between the middle class in emerging economies and those in advanced economies.”

Onward! Please send any news and comments to editor@impactalpha.com.

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